threeyear certificates What is the efiectuvo interest rate i

three-year certificates. What is the efiectuvo interest rate if interest is compounded (a) Every three months? (b) Daily? (c) Continuously? 3-54 A friend was left $50,000 by his uncle. He has decided to put it into a savings account for the next year or so. He finds there are varying inter- est rates at savings institutions: 23/8% compounded annually, 21/4% compounded quarterly, and 21/8% compounded continuously. He wishes to select the savings institution that will give him the highest return on his money. What interest rate should he select? 3-55 Jill deposited $8000 into a bank for 6 months. A the end of that time, she withdrew the money and

Solution

(1+2.375%)*50000=A=51187.5

(1+2.25%/4)^4=B=51134

exp(2.125)=C=51073

In this Case A is greter than any of the choices hence he should invest in 2.375%i.e.2 3/8%